After months of negotiations, Taylor Wimpey, the U.K.-based parent company of Taylor Morrison, has struck an agreement with its banks to restructure 2.46 billion pounds of debt instruments to terms that fit the depressed home sales markets in Great Britain and North America.
The largest builder in Britain was under the gun to complete the negotiations by the end of April. It had been granted several reprieves from an accounting of its financial situation that would have revealed it is in default of its lending covenants. The restructuring agreement announced April 7 is expected to be approved by 75% of its Eurobond holders by April 30.
The financials of the giant company, formed by the merger of two U.K. home builders George Wimpey and Taylor Woodrow in July 2007, have been deteriorating almost since the ink dried on the merger agreement.
The U.K. market was just beginning to show symptoms of the U.S. market malaise at the time of the merger, but by year's end, it was completely infected.
The process of the restructuring was "long and challenging," Taylor Wimpey CEO Peter Redfern said in a conference call. As a result of the negotiations, the company's debt maturity terms are reset to 2012. The company will have access to a total of 2.47 billion pounds of debt. At the beginning of April, it had 1.58 billion pounds.
And the new debt will be more costly than the former debt. Margins and coupon rates for the borrowings equal a 4.55% annual interest rate increase. Plus, there's an additional 1.5% "payment in kind" fee. That fee can escalate quickly if the company fails to meet debt reduction goals.
Under the terms, the company's 1.5% payment in kind fee will climb to 2.5% if it isn't able to cut its debt by 150 million pounds by June. It has another year to cut debt by 500 million pounds total by the end of June 2010 or face an additional 5% interest rate. If the 500 million-pound goal isn't met by December 2010, the total payment in kind interest rate will have grown to 10% total a year.
In a conference call, Redfern said he is somewhat assured the company will be able to meet the upcoming June goal because its recent performance has been better than expected, even though the 150 million-pound debt reduction by June was originally suggested because the company was planning to sell its Canadian business, which operates under the name Monarch Homes. That deal is on hold for financing reasons, Redfern said.
More challenging will be meeting the debt reduction goal of 500 million pounds set for December 2010. Redfern said the company will likely explore issuing more equity to pay that bill.
Taylor Wimpey also released operating results April 7 that showed a 2008 loss of 1.84 billion pounds on revenue of 3.47 billion pounds.
However, things are looking up for 2009 in the United Kingdom. The company said it has performed at the high end of expectations both in traffic and sales rates. Pricing began to stabilize by the end of 2008, the company reported.
The North American market, which includes Monarch in Canada as well as Taylor Morrison in the United States, reported sales rates below expectations for 2009.